Question
Interest Rate Risk Bank Duration GAP: State Banks balance sheet is listed below. Market yields and durations (in years) are in parenthesis, and amounts are
Interest Rate Risk Bank Duration GAP: State Banks balance sheet is listed below. Market yields and durations (in years) are in parenthesis, and amounts are in millions. Calculate:
Assets Liabilities and Equity
Cash $20 Demand Deposits $250
Fed Funds (5.05%, 0.02) 150 MMDAs (4.5%, 0.50)
T-bills (5.25%, 0.22) 300 (no minimum balance requirement) 360
T-bonds (7.50%, 7.55) 200 CDs (4.3%, 0.48) 715
Consumer loans (6%, 2.50) 900 CDs (6%, 4.45) 1,105
C&I loans (5.8%, 6.58) 475 Fed Fund (5%, 0.02) 515
Fixed-rate mortgages (7.85,
6.00) 1200 Commercial paper (5.05%, 0.45) 400
Variable-rate mortgages, Subordinated debt:
repriced @ quarter (6.3%,
0.25) 580 Fixed-rate (7.25%, 19.65) 200
Premises and equipment 120 Total Liabilities $3,545
Equity 400
Total assets $3,945 Total Liabilities and equity $3,945
a. What is the State Banks duration gap?
b. Use these duration values to calculate the expected changed in the value of the assets and liabilities and change in equity value of State Bank if Fed Chair Powell increases interest rate by 1.0 percent.
c. Calculate the expected change in the value of assets and liabilities and the change in equity value for a surprise decrease in interest rates of 0.5 percent?
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